Companies predominantly or exclusively engaged in non-domestic operations may, under certain conditions, benefit from a privileged income taxation based on a mixed/auxiliary companies status. According to these regimes, the non-Swiss source income is subject to a reduced tax burden at a cantonal/municipal level (terms usually stipulated in a tax ruling). The overall effective corporate income tax burden of a mixed or auxiliary company is usually between 9-12 %. Most of the cantonal tax laws currently do not stipulate any rules on the transition from mixed/auxiliary company status to ordinary taxed status. Under the current practice most cantonal tax administrations allow a privileged disclosure of hidden reserves accrued under the mixed/auxiliary company status (step-up with subsequent tax-effective goodwill depreciation in the subsequent years, step-up amount subject to annual capital tax) if a company changes its tax status to ordinary taxation.


According to the initial draft act of CTR III presented for public consultation, the transitional rule for the mandatory abolishment of mixed/auxiliary company taxation adhered to the step-up concept. Comments received in the public consultation flagged the negative tax accounting effects of the step-up concept proposed under international accounting principles (i.e. the need to recognize Deferred Tax Asset). Against this background changes to the technical implementation were introduced. The draft transitional tax rule presented to the Swiss parliament now provides for a separate taxation approach. Hidden reserves including goodwill that have accrued under the mixed/auxiliary company status will be taxed separately at a specific (reduced) rate during the five years following the change of the tax status to the extent such reserves would not have been taxable under the mixed/auxiliary company regime. The transitional rule does not specify the reduced rate (which remains at the discretion of cantons as per Swiss constitution). Also there are numerous technical aspects that remain unclear at this stage (including company valuation method, quantification of hidden reserves that qualify for specific rate, etc.). Despite these uncertainties and the extended timeframe, mixed/auxiliary companies should be aware of the following:


  • The abolishment of their tax status will be mandatory under CTR III
  • The CTR III transitional rule will harmonise the cantonal laws and will be compulsory
  • Certain aspects, in particular the specific tax rate applicable for the hidden reserves and goodwill), will remain at the discretion of the cantons
  • The tax practice under current laws allows for a tax-privileged disclosure of hidden reserves until CTR III enters into force (implementation through step-up/goodwill depreciation; with negative tax accounting effect)
  • In view of international developments on (spontaneous) exchange of information, it is likely that Switzerland will start exchanging information on tax rulings (including those regarding privileged tax status) for the year 2017 in 2018 with foreign countries
  • Companies might consider the option of changing their tax status before CTR III becomes effective
  • Some Swiss cantons already offer attractive corporate tax rates for ordinary tax companies (in anticipation of CTR III)
  • A significant reduction of the cantonal tax rates is expected together with the implementation of CTR II
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Taxand's Take

CTR III will put an end to specific attractive Swiss tax regimes including those of mixed and auxiliary company status. The draft transitional rule in respect of the abolishment of mixed/auxiliary company status provides for a separate (reduced) taxation of specific hidden reserve accrued under the mixed/auxiliary company status during the five years following the change of the status. Various aspects of the rule for mandatory transition under CTR III at this stage are still vague. Companies currently benefiting from a mixed or auxiliary company status have the option to change their status before CTR III becomes effective (step-up). Several Swiss cantons already offer attractive corporate income tax rates for ordinary taxed companies already. Companies benefiting from a mixed or auxiliary status should start evaluating the options they have for their transition into ordinary taxation, bearing in mind international developments incl. exchange of information.


Taxand Switzerland attentively monitors the developments and assists companies in their transitional planning.

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International Tax | Switzerland

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